China’s industrial minerals and markets: change is afoot

By Siobhan Lismore-Scott
Published: Thursday, 03 October 2013

New horizons, new markets - but China must change outlook

 
Image by Richard Flook

Shanghai is famous for many things. It has the largest population of any city in China, the tallest buildings, the most art deco buildings in one space east of Manhattan and it is, apparently , where the concept of sweet and s our Chinese food was born.

But for a snatch of time last week it became famous for the place where the industrial minerals world convened to talk about China and its future as an industrial minerals hub, during the IM China’s Industrial Minerals & Markets Roundtable.

 

The last year, as all know, has not been an easy one for industrial minerals markets. Steel, iron and (therefore) construction markets are recovering, but slowly. Manufacturing has hit a low. China — even China — is in a slump, with predicted glints of recovery amounting to disappointing figures time and again.

 

However, there does seem to be some recovery in sight, according to An Lili, Deputy Director of Industrial Product 2nd Office, Trade Dept., Ministry of Commerce (MOFCOM), China.

 

“The end of last year to July has seen a slow down,” Lili said. “But July and August saw better-than-expected growth.”

 

During a presentation on the first day of the China IM Roundtable, Lili said that some economic indicators had promoted optimism — namely a month-on-month increase in the Purchasing Managers Index (PMI) and an uptick in steel markets.

 


 

Ken Su, China mining and metals leader, PricewaterhouseCoopers (PwC), China, agreed that there was some optimism, telling delegates that PwC believed “while lower than the last decade, overall demand growth from China is expected to remain strong”.

 

“Growth in energy use will drive industrial minerals growth,” he added. “China is trying to become a leader in green technologies

 

Change afoot

 

While all were in agreement that China would remain an important – if not the most important — market for industrial minerals, most also added that practices would have to be changed if the industry is to continue to compete with Europe, or to be self sufficient.

 

Zhang Zhan, chairman of China’s Non-metallic Industry Association, outlined to delegates that change needed to take place within the industrial minerals industry because “demand for industrial minerals is expected to grow by 10% by 2020 – this is the most basic estimate,” he emphasised.

 

“There are a lot of details but everything should be centred around energy saving and better valuation of our resources,” Zhan explained.

 

This is outlined in China ’s drive to develop seven key industries: new energy; new energy automotive; new materials; energy saving and environmental protection; biological science; new information industry and high-end equipment manufacturing.

 

Furthermore, as Zhan put it to delegates, while GDP is expected to grow – it is the quality of the GDP growth that matters.

 

“China’s economy is quite stable but there are still some fundamental issues that need to be resolved,” he said. “The new government says it will be the quality of GDP growth that will be more important,” he added.

 

Richard Flook, managing director of Shinagawa Refractories Pty Ltd, agreed that change needed to take place in China, adding that the country has so far been able to exploit its vast mineral reserves for a low cost “but at a high cost to the environment”. Inefficient mining, high energy costs and a large  — but weak — market led to an “unsustainable” situation he said.

 

 
 Ken Su addresses the room


Flook touched on the subject of shale gas in China: “Sources for cheap energy are going to become increasingly important,” he said, adding that the exploitation of China’s vast shale reserves will take place in the near future.

 

“There’s a lot of cheap gas that could come into play,” Flook added.

 

Mineral by mineral

 

Edward Barlow, country manager for TZMI, meanwhile discussed   how the zircon market will change in China. At the moment, Barlow said, China relies on imports (80% is imported, mainly from Australia) for use in its ceramics industry.

 

The market is now very weak, Barlow said, after high prices of zircon in 2012 drove zirconium and ceramics producers to run down inventories.

 

“Consumers had enough. They stopped buying and ran down inventories,” Barlow explained.

 

Looking ahead, Barlow said that strength in the housing and consumer markets will drive Chinese growth.

 

In magnesia, Christopher Zhao, assistant director to the Liaoning Special Resource Protection Office, China, said that the industry will work to eradicate smuggling and modernise practices.

 

“We need to protect the materials in regard to energy saving,” he said. We want to promote a high quality product and promote the development of a high-quality magnesia construct that will support a world base,” he added.

 

For graphite, IM Data’s Albert Li explained that the country was moving to consolidate the industry, adding that this will happen region by region as there are different levels of government control.

 

 Albert Li explains the Chinese graphite industry
 

Relationships with the west have become more important for companies, Li added: “In the past governments have turned a blind eye to poor practice, but now people are looking at Guangxi as key to doing business in China,” Li said.

 

Talc markets meanwhile were being hampered by government involvement, explained Jia Xiu Zhuang, Haichen MinChem Co. Ltd.

 

“China is facing the most difficult and worst time [in talc] — even worse than 2009,” he explained.

 

Jia said that the government’s failure to remove the talc export tax as well as other “hidden charges” meant that exports were falling off.

 

The price of high quality talc will remain strong, he said, but middle to low grades will be soft.

 

This was referred to several times over the course of the China event, with many speakers underlining that they were not sure why the quotas were waived for all other minerals, aside from magnesia and talc.

 

“It is imperative to reduce or avoid man-made intervention,” Jia said.

 

Investing in China

 

There is still room for investors in China, but more consideration has to be given to life after the deal, Su emphasised.

 

“The most common mistake for a deal falling apart is that people don’t look at life after the deal,” he said.  “People must always consider a post-deal world”.

 

China’s landscape was changing, PwC’s Su added, as lifestyles change. A shift in calorie intake for example, and the consumption of more meat, meant that there is more pressure on the food chain and more need to import agriminerals like potash and phosphate.

 

As people change then, so do markets. Africa could be a potential for Chinese investors, for example (as was argued by Chris Potgieter, director, BFluor Chemicals Pty (Ltd)), and the emergence of shale gas as an energy source means that there is also a market for oilfield minerals and  ceramic proppants.